The nominal exchange rate is about 3 Brazilian real per dollar. If a basket of goods in Canada costs $40, how many real must a basket of goods in Brazil cost for purchasing-power parity to hold?

Question

Quizplus · Accepted Answer

For purchasing-power parity to hold, the cost of the basket of goods in Brazil in real should equal the cost of the basket in Canada in dollars multiplied by the exchange rate. Therefore, 40 dollars * 3 real/dollar = 120 real.

The Nominal Exchange Rate Is About 3 Brazilian Real Per